The Majority of Russia’s Electric Supply Comes from Natural Gas

The Majority of Russia’s Electric Supply Comes from Natural Gas

Following the collapse of the Society Union in 1991, total electricity consumption in Russia decreased rapidly only to gradually begin increasing again after 1998. It seems to have levelled off in 2018 and was even reduced by a tiny fraction in 2019. In 2018, electricity consumption levels amounted to 999.4 Terawatt hours (TWh).

Electricity consumption per capita has followed a very similar trajectory.

According to data from IEA, depending on the year, the majority of Russia’s electricity comes from natural gas (around 50%) while coal and nuclear account for around 15-18% each. Hydropower contributes 17% to the mix while other renewables are virtually absent.

Source: IEA


Data from IEA suggests that Russia does not export electricity; in fact, it is partially reliant on energy importation. Between 1992-2008 Russia transitioned to a market model for the functioning of the electric power industry.

In 2005, Russia embarked on an ambitious program of electricity reform:

“Russian policy makers have recognized that attracting timely and appropriate investment will remain a substantial and ongoing challenge, which can most effectively be addressed through the creation of efficient electricity markets operating in response to genuine price signals, within a robust and predictable legal and regulatory framework. Only such markets, in which competition is based on transparent prices that accurately reflect costs, can deliver the efficient, reliable and internationally competitive performance needed to meet the government’s economic targets in the longer term. Such markets can attract the new investment that the industry will need, especially in order to ensure security of electricity supply beyond 2010”.

This laid the foundation to the most important reform in the energy sector in modern Russia – the reform of RAO UES.

Reform of “RAO UES”

In June 2008, the most important stage of the reform of the Russian electric power industry was completed – the reorganization of RAO UES (OAO Unified Energy System). It is an electric power holding company in Russia that controls about 70% of the country’s installed electric capacity, 96% of its high-voltage grid, and over 70% of its transmission lines. In addition to the Russian market, RAO UES exported electricity to Scandinavia and to other members of the CIS.

The reorganization of RAO UES started in 2006. The first stage of the reorganization was completed on September 3, 2007, during which subsidiary generating companies (WGC-5 and TGC-5) were individually spun off from the parent RAO UES. During a second stage of reorganization, all remaining subsidiaries of RAO UES were spun off by July 1, 2008.

This reorganization was seen as a massive privatization of the power industry, with the goal of attaining about US$79 billion in investments. As a result, RAO UES ceased to exist after its merger into UES FGC, a Federal Grid Company. Altogether, six wholesale generation companies (WGC), 14 territorial generation companies (TGC), RusHydro, FGC UES (Federal Grid Company), SO-CDA (System Operator), IDC Holding, RAO ES of the East, and Inter RAO UES continue to operate as independent entities. The industry, considered an unreformable monopoly controlled by the state, began to turn into a market one based on competition and private property.

The reform raised many questions; there were opponents and sceptics who doubted its success. Nevertheless, the reform began to yield positive results. Firstly, the collection of payments with “real” money increased. If in 1998 this figure was around 20%, by the 4th quarter of 2001 it reached 100%. At the same time, debts to coal miners and gas workers were paid off; salary delays for power engineers stopped. When the anti-crisis management began to bear fruit, the management of RAO “UES” began to fulfil the next most important task – to search for solutions for the development of the industry.

An overview and evaluation of the reform on TASS news agency came to the following conclusions regarding the reform:

  • The demand for electricity increased, but there was not enough capacity. The construction of new energy facilities required a lot of money, which was absent from the budget.

According to experts, the industry’s need for investments in 2006–2010 was estimated at about 11.8 trillion Russian rubles, of which 6.7 trillion was required to create new generating capacities. At the same time, the reformers decided that raising tariffs was not an option. It was necessary to make the energy sector attractive for investment, but for this it was necessary to change the management system of the country’s energy system, making it accessible to investors.

To do this, 73 regional energy systems were divided by types of activity generation and sales, whether access was opened for private investments, and by networks and dispatching–which remained under state control. A wholesale electricity market emerged and the Government of the Russian Federation approved the General Scheme for the Location of Electricity Facilities until 2020. The public offering of shares of 18 generating companies took place in 2007-2008. This made it possible to attract more than $30 billion and launch an investment program in the country to create new energy capacities. This completed the reform in the Russian energy sector, and on June 30, 2008, RAO “UES of Russia” ceased to exist. The functions of managing the industry were transferred to the Ministry of Energy of the Russian Federation, the participants of the energy market united into the community of energy producers and consumers called NP “Market Council”.

The total capacity of generating facilities in the thermal power industry, opened under a capacity supply agreement (CSA) between investors and consumers of the wholesale electricity market, amounted to 26.5 GW in 2008–2017. In total, 39.8 GW was commissioned during this period, according to calculations of the Russian Energy Agency. This made it possible to replace the Soviet steam-power units of TPP’s with modern steam-gas plants with a higher efficiency (55-60%). This is the largest start-up of generating capacities in the Russian energy sector in several decades. In 1991-2001, this figure was 12.4 GW. By increasing the reserve of the grid and generating capacities, the reliability of the power system had increased.

The average duration of outages in distribution networks from 2010 to 2013 had halved to 2.15 hours. Accidents at power plants of RAO “UES” from 2011 to 2017 decreased by 16%. On power grids with a voltage of 110 kV over the same period, the number of accidents decreased by 23%.

The risks of massive winter outages for industrial consumers due to power shortages during peak periods disappeared. Large-scale investments in new grid and generating capacities helped contain the cost of electricity, which is currently growing more slowly than fuel prices.

In addition, the development of the electric power industry increased the demand for the products produced by the Russian power engineering industry. The production of steam turbines in Russia increased by 79% from 2010 to 2017 while steam boilers (except for central heating boilers and their components) increased by 36% in the same period. According to the forecasts of the ACRA rating agency, the period from 2018 to 2020 was predicted to be marked by the highest financial indicators in the entire history of the domestic electric power industry.

Law on Microgeneration

The law on microgeneration, which came into force de facto in 2020 (de jure – December 30, 2019), has long been awaited by supporters of renewable energy. This normative act legalized the concept of “microgeneration” and allowed citizens or individuals to produce electricity for their own needs: to have a solar panel, wind turbine, or diesel generator in a country house. Although this was not prohibited before, this law is novel because it allows for the possibility of technological connection to public networks and sale of surplus generated energy to the guaranteed supplier.

As an incentive for such activities, the necessary changes have been made to the Tax Code: for example, the sale of energy by the owner of a generating micro-installation is not considered an enterprise and until 2029, it is not subject to personal income tax. The establishment of microgeneration fits perfectly into the concept of the “Internet of Energy”, an idea rapidly developing abroad and in Russia. It essentially involves the creation of a local energy infrastructure (micro-energy system or micro-grid) in which energy producers and consumers are integrated and within which they can freely exchange energy. By 2035, according to experts, the share of such energy will account for more than half of the market, which is estimated today at $3 trillion and promises to grow by more than 60%.

A year has passed since the law came into force, what are the results?

“The application of the law is so far isolated” Anton Usachev, director of the Association of Solar Energy Enterprises, told Rossiyskaya Gazeta in an interview. “Only a few projects have been implemented. For example, in the Sverdlovsk Region, a solar installation is connected to the distribution network, and the owner of solar modules is successfully selling the surplus to the network. We now need regulations governing the relationship between the owner of the solar plant, the guaranteeing supplier and the power supply company. This will standardize many processes, making the process of connection and settlement easier.” Meanwhile, interest in the development of microgeneration is evidenced by a large number of appeals from citizens and organizations to the Ministry of Energy of the Russian Federation.

The microgeneration law does not specify the source of future energy. It can hypothetically be anything, perhaps with the exception of an atomic reactor. It all depends on the economic benefits of using one fuel or another.

Smart Electricity Meters

In July 2020, the Ministry of Energy announced that from 2022 onwards, only smart electricity meters will be installed. From July 1, responsibility for them passed to the energy companies (guaranteeing suppliers in apartment buildings and to grid companies in the case of private residential development). Consumers will save anywhere between 5,000-20,000 rubles ($68-$275) on the purchase and installation of meters, according to the Ministry of Energy. Also, all responsibility for maintenance and verification of electricity meters is removed from consumers, but the obligation remains to monitor their safety if the meter is installed in an apartment or on a site where a private house is located. The Ministry estimates a reduction in electricity losses at about 70-80 billion rubles ($956million – $1.1 billion) per year at current prices.

All other laws and reforms within Russia’s electricity sector can be found here in Russian:


“We treat ecological and climate problems responsibly, by paying a great deal of attention to increasing the percentage of renewable, especially hydro and nuclear, power sources in order to keep a national energy balance, improve government regulation of greenhouse gases emissions, and provide for a rapid and economically efficient reduction of GHG emissions in compliance with the Paris Agreement. Russia will continue to cooperate constructively with all stakeholders, especially in the energy industry, on the principles of mutually profitable cooperation and equal partnership,” said President Putin in October, 2016 at the World Energy Congress in Istanbul.

The key recommendation would be to follow up on this promise and create the necessary conditions for other renewable energy sources to be used and scaled up to start weaning Russia off natural gas and coal. Currently, renewable energy in Russia is still underdeveloped due to the lack of a conducive government policy framework and lack of clear policy signals. The abundance of energy and subsidies for natural gas, electricity and heating have also hampered growth of renewable energy in the country, therefore subsidies need to be shifted from dirty energy sources to clean, renewable ones.


Nikolay Shulginov, Energy Minister of the Russian Federation


This Post was submitted by Climate Scorecard Russia Country Manager Maria Stambler

Image Source: Konstantin Chalabov/RIA Novosti

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